The BOE’s latest half-yearly Financial Stability Report paid special attention to the U.K.’s property boom. A combination of historically low interest rates plus the BOE’s promise to keep them there for a long time yet, a flood of foreign capital and various government measures to get housing going again have turned the flame up under the real estate market.

London clearly looks bubbly. Property prices now run at well more than ten times average earnings in central areas and around ten times across the commuter belt. Hitherto, the BOE has ignored this trend, arguing that it doesn’t make policy for the capital alone–notwithstanding that London and its hinterland makes up more than a fifth of Britain’s population. But with house price appreciation having spread more broadly and with property prices a perennial in the press and the main topic of London dinner party conversation, the BOE has finally taken note.

BOE Governor Mark Carney acknowledged “valuations, while below levels reached in 2007, are high by historic standards and are likely to rise in the near term.” Given 2007 represented the peak of the country’s biggest-ever housing bubble, that valuations are still short of those levels is small comfort.

Until recently, the BOE has focused on the fact that on the basis of household interest and regular mortgage principal payments, British housing is as affordable as it has been any time in the past thirty years or so.

But the latest stability report has shifted to the ratio of house prices to earnings. Average earnings have barely grown since the financial crisis–and have declined in real terms–while house prices have been accelerating.

That’s because while property will remain affordable as long as interest rates stay at rock bottom levels, the recent strength of the U.K. economy is forcing the BOE to think about what happens when interest rates start to rise. An ever-rising proportion of mortgages are at high loan to income ratios–some 18% are at 4.5 times or higher in London and 12% in the country generally. This is especially true of first-time buyers, while they’re also borrowing over longer terms.

What’s worse, households with high mortgage borrowing relative to their income also have high levels of unsecured debt.

Having encouraged people to borrow and spend by promising to keep rates lower for longer, the BOE now has to check a property market that runs the risk of boiling over.

To square this circle, the BOE is looking to macro-prudential measures–leaning against the wind. The most immediate one is to ensure its Funding for Lending Scheme designed to subsidize borrowing is no longer used for mortgages from January 2014.

There are reasons to believe this is just a cosmetic measure.

By Mr. Carney’s own admission, the BOE’s generous liquidity measures mean that withdrawing FLS from mortgage suppliers will hardly matter to lenders. At the same time, the government is boosting the market through its Help to Buy mortgage guarantee subsidy.

The Financial Stability Report noted that further measures could be instituted if prices kept moving higher. It could tighten lenders’ capital requirements. Or it could limit the maximum loan to value or loan to income ratios of mortgages–thus ironically bumping up against the Help to Buy scheme which helps borrowers get around the problem of not being able to raise high enough loans relative to value.

Although sterling appreciated following the Financial Stability Report–suggesting the market sees the BOE’s concerns about the property market as a prelude to raising rates–the real message was that it would seek to do everything but raise rates in order to stem a housing bubble.

Will it work?

The BOE cites macro-prudential tools used by Sweden, Switzerland, Norway, Canada, Hong Kong and New Zealand in order to limit their own overheating housing markets. But these are also some of the most highly overvalued property markets in the world on historic price to rental and price to income ratios. Clearly these measures haven’t cause prices to deflate in these countries. Maybe, at best, they’ve held back the pace of appreciation, preventing bubbles from getting bigger.

Until prices deflate–or pop–the jury will be out on leaning against the wind as an effective policy tool. But for now, it’s the only approach the Bank of England is willing to consider to prevent another British housing bubble.